Buy IndusInd Bank - Robust 4Q: strong NIM expansion, stable NPLs - Nomura

Indusind Bank reported 4QFY13 PAT of INR3.1bn, 3% above Nomura's estimate of INR2.95bn (consensus at INR2.9bn). The PAT beat largely came in on account of a 25bps sequential improvement in NIM to 3.7%, which led to healthy 42.4% y-y NII growth and 223bps q-q improvement in cost-income ratio. GNPL ratio remained flat q-q at 1%, with delinquency of INR1.26bn during the quarter and LLPs of 54bps, dispelling the Street's concerns on asset quality in its CV book.

IIB currently trades at 2.8x our FY14F ABV of INR162.5 and 17.2x our FY14F EPS of INR26.1. At our TP the stock would trade at 3.2x FY14F ABV and 19.9x FY14F EPS for an FY14F ROE of 17.9%.

We arrive at our target price of INR520 using a three-stage residual-income valuation method that assumes the following: 1) 24.3% CAGR for interest-earning assets over FY12-17F, 15.6% CAGR over FY17-25F and a terminal growth rate of 4%; 2) average ROE of 18.9% over FY12-17F & 21.9% over FY18-FY25F and a 19.9% terminal value ROE; and 3) discount rates ranging from 14.4% (current cost of equity) for FY12-17F, 12.3% for FY18-25F and a 10% terminal rate. At our TP, IIB should trade at 3.2x our FY14F ABV of INR162.5 and 19.9x our FY14F EPS of INR26.1 for an ROE of 17.9% for FY14F.

Risks that may impede the achievement of the target price Key risks include loss of momentum in loan growth, CASA growth and changes in the top management team.

Shares of IndusInd Bank last traded in BSE at Rs.450.10, up by Rs.30.30 or 7.22%. The stock hit an intraday high of Rs.455.70 and low of Rs.418.

The total traded quantity was 8.74 lakhs compared to 2 week average of 3.26 lakhs.

Source : Equity Bulls

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